Nov 30, 2012, 08.35 AM | Source: Moneycontrol.com
There has been a certain optimism associated with December as bulls, across globe, bet on a santa rally; and more often than not they have been adequately rewarded.
There has been a certain optimism associated with December as bulls, across globe, bet on a Santa rally; and more often than not they have seen a cheerful Christmas.
In the last two decades, the last month of the year has generated returns between 0.7% and 15.7%, which has given birth to the December phenomenon theory. Only four times in the last 20 years -1994, 2000, 2001 and 2011 - December has generated negative returns, states a recent Morgan Stanley report.
What is December phenomenon
According to the Morgan Stanley report, "the December phenomenon is explained by the fall in institutional activity associated with the holiday season (especially in the second half of the month). Consequently, local speculators tend to exert higher influence on shares and they rise in anticipation of fresh FII allocations in January." The report explains that local speculators tend to influence shares which rise in anticipation of fresh FII allocations in January. However, the report maintains that flows in January do not justify the December theory.
"While this is one theory for the success of December, facts on January flows do not necessarily prove this. For example, January flows have been negative in four out of the past five years," the report said.
Will December 2012 imitate past phenomenon?
Going by the historical data, December 2012 should prove good for the bulls. The current environment, global as well as domestic, indicates market may move up rather than down. International rating agencies like the Moody's and Goldman Sachs exhibited confidence in India by explaining that lower growth, slowing investment and poor business sentiment are likely to reverse sooner than later. Positive resolution of ‘fiscal cliff’, EU stability, impending Reserve Bank of India policy meet and a functional Parliament will support a rally in December. On Tuesday, bulls got a whiff of things to come and the Sensex rallied over 300 points.
Counting on the positives mentioned abover, The November series too saw a sudden spurt of interest with Call and the Put writers taking a northward position. Hemant Thukral of Aditya Birla Money says Nifty can go to 5825 in December series. Many analysts are willing to put their money on Nifty 6000.
Nifty at 6000 debate?
Sanjay Dutt, Director, Quantum Securities is not very hopeful of hitting 6000 by December but he is positive that the market would remain on a positive note right through the month of December. "Business is looking better than what it was in the last two-three years," he elaborates.
Tirthankar Patnaik, Religare Capital Markets too agrees that historically, December has been the best month for the Indian market. He explains that an average return in December is 3.5 percent, which is more than double compared to any month's average in the year.
Patnaik, however, is concerned that currency may play spoilsport in the December rally.
Ambareesh Baliga, independent analyst is not expecting the Nifty to hit 6000 but feels it may be in the range 5800-5850.
What to buy in December 2012
According to Dutt, this is the best time to bet on midcap stocks. He explains that midcap companies would benefit from easy money and as interest rate cycle turn which RBI has indicated, in December-January.
Dutt is optimistic on Reliance Capital as he sees significant upside in the stock from the current levels. He feels that aviation is a decent trading bet for 3-6 months. He also advises a tactical exit from United Spirits at current valuations.
Patnaik bets on M&M, Zee TV, Sun TV and Cairn India, "We are pushing PSU banks as a pack, wherein Union Bank has been our pick and other than that we have been fairly positive as a top pick on State Bank of India (SBI) for a longish period now," Patnaik adds.
Nilesh Shah of Axis Direct is bullish on pharmaceutical. "Overweight in pharmaceuticals sector should be beneficial to the investors," he asserts. Within banking and financial services sector, he thinks private sector banks will outperform pubic sector banks.
Thukral suggests buying Yes Bank and Sterlite.